23 Aug 2013

HDB grant extension could hit resale market for public flats

The stagnant resale market for public flats could be hit further when housing grants are extended to middle-income households, according to property analysts.

The grants will make a new four-room Housing Board flat even cheaper, and that could lure away potential resale flat buyers.

On Sunday, Prime Minister Lee Hsien Loong had announced that those in the middle-income bracket would get more help to buy a bigger flat.

A family who earns $4,000 now gets about $15,000 in grants. But soon, up to $20,000 extra will be given out to them under the Special Housing Grant, which currently covers only lower-income households earning $2,250 a month or less.

This means that a middle-income household can buy a new four-room flat - which costs $246,000 after grants - for a monthly mortgage of $987 on a 25-year loan, PM Lee explained.

While further details will be announced only next week, property analysts say this extra grant will likely be tiered to help the lower- to middle-income group get their first HDB flat.

This could spell further trouble for the resale market, which has been hit by tighter loan rules restricting a household's monthly bank mortgage payments to 30 per cent of its income.

The 10,000 resale deals made in the first two quarters of this year is the lowest since 1997, according to HDB data.

Adding to that, a much bigger proportion of first-timers is now going for new Build-To-Order (BTO) units. This has gone up from 55 per cent in 2009 to 92 per cent now, because of the wider array of flats offered and rising resale prices.

According to the Singapore Real Estate Exchange, the current median price for a resale four-roomer is $455,000. Grants will reduce it to $406,000 for a first-timer.

If a buyer takes a 25-year loan of 80 per cent of the flat's value, he will have to fork out around $1,500 a month, depending on interest rates, said SLP International's head of research Nicholas Mak.

ERA Realty key executive officer Eugene Lim said buyers will have to choose between a larger four-room BTO unit, which will be ready only in several years, or a two-room resale unit that will cost them a similar amount of around $280,000.

"The (new grants) might very well justify the three-year waiting time for a new flat," said Mr Lim.

Mr Mak said the response would depend on how the grants are tiered, and the cap on qualifying income.

"The location of these new flats, and how many HDB can launch, are also key factors. But people will come forward if you make it cheap enough," he said.

First-timer Darius Wong, 30, said it will boil down to price: "More grants spell good news for me. But whether it will influence my buying decision will depend on how much I have to pay."

Owners hoping to sell their flat may have to ask for a smaller cash premium over valuation, said OrangeTee research head Christine Li. "When cash over valuations go down significantly, it will be attractive to buy resale flats again," she said.